High-interest rates can make credit cards difficult to pay off, but a balance transfer card can help. If you quality for a credit card balance transfer, you could take advantage of low or even nonexistent introductory interest rates to save money on paying back your debt. If you’re good at budgeting, you can use a balance transfer as an opportunity to pay down some or all of your debt while saving money on interest charges.
That said, a balance transfer isn’t a magic bullet. Transfers don’t eliminate your credit card debt; they just move it to another card. There are usually fees involved, and in some cases, they may be high enough to cancel out any savings you may incur from lower-interest rates. Plus, you should know that the lower interest rates on balance transfer cards don’t last forever. Once the introductory period has ended, you’ll have to pay interest at a rate similar to that of your old card.
Save Money on Credit Card Interest
If you’ve got credit card debt, chances are you’re paying a high rate of interest. Not only can high interest rates mean a longer repayment period, but they also mean you pay more out of pocket for the privilege of borrowing that money. For example, if you owe $10,000 at 18 percent interest and just make the minimum payment of $200, you’ll barely make a dent in your debt. After all only $50 of that was actual debt and the rest was interest, meaning that after a year, you’ll have only truly reduced your credit card debt by $600.
However, balance-transfer credit cards often offer zero percent interest for an introductory period, allowing you to save quite a bit of money on interest while paying down your balance at the same time. By the time your introductory period ends, you’ll be that much closer to paying off your credit card debt and will have a lower balance to accrue interest on.
Make the Most of Your Balance Transfer
Many people use balance transfers as an opportunity to get out from under high-interest rates so they can make a real dent in their credit card debt. In fact, one of the biggest benefits of a balance-transfer credit card is that it can be a great tool for helping you pay off your debt. If you’re able to consolidate multiple credit card balances onto a single card, doing so could free up some room in your budget, allowing you to pay down your credit card debt faster. Even if you’re only carrying a balance on one card, your whole monthly payment will go toward the principal, saving you money and shrinking your balance more quickly. Consolidating your credit card debt onto a single card can simplify your financial life, leaving you with just one account to worry about.
Balance-transfer cards often come with other perks, too. You might use the opportunity to apply for a card that offers cash back, travel rewards, discounts, or other perks. Just remember that you’ll probably have to pay interest on new purchases you make with the card.
Things You Should Know
While a credit card balance transfer can save you money and be a valuable financial tool, you should know that it’s not a solution to your credit card debt. You’ll still owe the money, and you’ll still have to pay it back, even if you do save on interest. Most balance-transfer cards charge a one-time fee for the privilege of transferring a balance, and that fee may range from 2 to 5 percent of the total balance being transferred. That means if you’re transferring a large balance, you could end up paying several hundred dollars in fees. Find out if it’s worth it by calculating the amount of interest you’ll save over the introductory period and comparing that number to the one-time fee.
Remember that the low-introductory interest rate won’t last forever, either. Introductory rates on balance-transfer cards may last for only a few months. However, there are plenty of deals that offer zero percent interest on balance transfers for 18 months or longer. The longer the interest rate lasts, the more money you’ll save, so look for a card with a long introductory rate period.
Balance-transfer credit cards can save you hundreds or even thousands of dollars in interest on your credit card balance. The money you pay during a zero-interest period goes directly to your principal, lowering your balance and saving you money in both the short and long-term. By the time your introductory period is over, you’ll be surprised at how much you’ve been able to pay off — and how much closer you are to your financial goals.